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Goals Based Investing protects your capital during downturns

"Only when the tide goes out, do you discover who’s swimming naked”.
Warren Buffett

If you were investing during the GFC (2008-2009), you would remember your superannuation balance significantly decreasing and taking many years to get back to its pre-2008 balance. 

You would remember the number of managed funds (mostly direct property funds) that had to freeze redemptions. The end result was that investors were stuck in an investment for 1-2 years that provided no capital return, no income and more than likely, dropped significantly in value once redemptions were allowed.

What was discovered during the GFC was that the traditional superannuation portfolio (default option) may have been taking more risk than you required. The superannuation fund asset allocation was not linked to your individual goals. A better way to invest is by adopting a Goals Based Investing approach, which we explain further below.

The focus of Goals Based Investing is to build your investment portfolio to meet your specific individual personal and lifestyle goals. Each goal will usually have a different timeframe and a different return requirement to achieve the goal. These inputs are the best determinant of your asset allocation and investment mix. This approach is different from most Australian’s super accounts, that are typically invested in a default 'balanced' investment portfolio. This form of investment could have no relationship to the underlying goals or return needs.

The Goals Based Investment (GBI) approach differs from traditional investment methods in five main ways.

  1. It is the goal and the requirements to achieve it that determines asset allocation and underlying investments, not the risk profile, which is of secondary importance
  2. It uses forward-looking market insights and a client’s evolving financial circumstances to guide the investment strategy. 
  3. It also uses dynamic asset allocation (DAA) across a diverse range of investments to improve the probability that return targets are met throughout market cycles
  4. It will have a broad range of investment options and chose to use those options only when they help achieve the goal
  5. It is designed to meet specific outcomes, not linked to market benchmarks or indices

A beneficial outcome of investors adopting a GBI & DAA investment approach is its greater ability to provide capital protection and lower volatility. This approach differs from the standard Strategic Asset Allocation (SAA) investment method. SAA is a more passive strategy based on backward-looking benchmark returns. It requires investors to ride out market ups and downs. This can work well in a bull market but fails during large market falls, as occurs from time-to-time.

At WLM Financial, we have three decades track record of helping people achieve their goals. Our experience in working with investors and managing their investments has led us to conclude that a Goals Based Investment approach provides for superior outcomes. The strategy and results are easier to understand, and investors find it more comfortable to live with. 

You can find out more, please contact us.

To find out more about WLM's financial planning services click here.


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